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Using Return Polices to Elicit Retailer Information

Author

Listed:
  • Anil Arya

    (Ohio State University)

  • Brian Mittendorf

    (Yale School of Management)

Abstract

We show that a manufacturer may prefer to offer a return policy when dealing with a retailer who holds advance knowledge about market conditions. Roughly stated, the manufacturer offers a liberal return allowance in lieu of a lower price to satisfy a retailer facing unfavorable market conditions. A retailer facing favorable conditions finds this tradeoff unattractive because he is likely to sell the merchandise anyway and thus not make as much use of the generous return terms. As a consequence, a retailer is less inclined to misstate market conditions. By serving as an additional control instrument, a returns policy reduces the manufacturer's need to ration (cut) production.

Suggested Citation

  • Anil Arya & Brian Mittendorf, 2004. "Using Return Polices to Elicit Retailer Information," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 617-630, Autumn.
    • Handle: RePEc:rje:randje:v:35:y:2004:3:p:617-630
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    Citations

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    Cited by:

    1. Lauren Skinner Beitelspacher & Thomas L. Baker & Adam Rapp & Dhruv Grewal, 2018. "Understanding the long-term implications of retailer returns in business-to-business relationships," Journal of the Academy of Marketing Science, Springer, vol. 46(2), pages 252-272, March.
    2. Sawoong Kang, 2006. "Return Policy as a Signaling Device in Horizontally Differentiated Products," Korean Economic Review, Korean Economic Association, vol. 22, pages 409-436.
    3. Mehmet Gümüş & Saibal Ray & Shuya Yin, 2013. "Returns Policies Between Channel Partners for Durable Products," Marketing Science, INFORMS, vol. 32(4), pages 622-643, July.
    4. Tinglong Dai & Soo-Haeng Cho & Fuqiang Zhang, 2016. "Contracting for On-Time Delivery in the U.S. Influenza Vaccine Supply Chain," Manufacturing & Service Operations Management, INFORMS, vol. 18(3), pages 332-346, July.
    5. João Montez, 2015. "Controlling opportunism in vertical contracting when production precedes sales," RAND Journal of Economics, RAND Corporation, vol. 46(3), pages 650-670, September.
    6. Newton, Jonathan & Wait, Andrew & Angus, Simon D., 2019. "Watercooler chat, organizational structure and corporate culture," Games and Economic Behavior, Elsevier, vol. 118(C), pages 354-365.
    7. Shouqiang Wang & Haresh Gurnani & Upender Subramanian, 2021. "The Informational Role of Buyback Contracts," Management Science, INFORMS, vol. 67(1), pages 279-296, January.
    8. Bel, Roland & Smirnov, Vladimir & Wait, Andrew, 2015. "Team composition, worker effort and welfare," International Journal of Industrial Organization, Elsevier, vol. 41(C), pages 1-8.
    9. Jeffrey D. Shulman & Anne T. Coughlan & R. Canan Savaskan, 2010. "Optimal Reverse Channel Structure for Consumer Product Returns," Marketing Science, INFORMS, vol. 29(6), pages 1071-1085, 11-12.
    10. Bel, Roland & Smirnov, Vladimir & Wait, Andrew, 2012. "On Broadway and strip malls: how to make a winning team," Working Papers 2012-14, University of Sydney, School of Economics.
    11. Howard P. Marvel & Hao Wang, 2007. "Inventories, Manufacturer Returns Policies, and Equilibrium Price Dispersion under Demand Uncertainty," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(4), pages 1031-1051, December.
    12. Petrikaitė, Vaiva, 2018. "A search model of costly product returns," International Journal of Industrial Organization, Elsevier, vol. 58(C), pages 236-251.
    13. Pfeiffer, Thomas & Schneider, Georg, 2010. "How to elicit sequential retailer information optimally," Journal of Economics and Business, Elsevier, vol. 62(2), pages 147-159, March.
    14. Gurnani, Haresh & Sharma, Arun & Grewal, Dhruv, 2010. "Optimal Returns Policy under Demand Uncertainty," Journal of Retailing, Elsevier, vol. 86(2), pages 137-147.
    15. Thomas Pfeiffer & Georg Schneider, 2007. "Residual Income-Based Compensation Plans for Controlling Investment Decisions Under Sequential Private Information," Management Science, INFORMS, vol. 53(3), pages 495-507, March.
    16. Lennart C. Johnsen & Guido Voigt & Joachim Weimann, 2020. "The Effect of Communication Media on Information Sharing in Supply Chains," Production and Operations Management, Production and Operations Management Society, vol. 29(3), pages 705-724, March.
    17. Pfeiffer, Thomas, 2010. "A dynamic model of supplier switching," European Journal of Operational Research, Elsevier, vol. 207(2), pages 697-710, December.
    18. Kim, Junyong & Wansink, Brian, 2012. "How Retailers’ Recommendation and Return Policies Alter Product Evaluations," Journal of Retailing, Elsevier, vol. 88(4), pages 528-541.
    19. Babich, Volodymyr & Li, Hantao & Ritchken, Peter & Wang, Yunzeng, 2012. "Contracting with asymmetric demand information in supply chains," European Journal of Operational Research, Elsevier, vol. 217(2), pages 333-341.
    20. Sherif Nasser & Danko Turcic, 2019. "Temporary Contract Adjustment to a Retailer with a Private Demand Forecast," Management Science, INFORMS, vol. 65(1), pages 209-229, January.
    21. Matsui, Kenji, 2010. "Returns policy, new model introduction, and consumer welfare," International Journal of Production Economics, Elsevier, vol. 124(2), pages 299-309, April.

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